Oct. 15 (Bloomberg) -- The European Union tightened
sanctions on Iran in a bid to persuade Tehran to permit more
international scrutiny of its nuclear program and avert a
possible military conflict.

EU foreign ministers in Luxembourg today approved extra
curbs on trade with Iran and on its finance, energy and
transport industries following an oil embargo and a central-bank
asset freeze earlier this year. The ministers also froze the
assets of 34 Iranian entities to hinder the Iranian government’s
ability to raise funds for its atomic program, which the U.S.
and EU say is aimed at producing weapons.

The new measures, which complement U.S. restrictions and
are meant to close loopholes in existing European sanctions,
come after global talks on Iranian atomic activities yielded
little progress in recent months and the Israeli government
warned of a growing threat of a nuclear-armed Iran. The Islamic
republic says its atomic program is for civilian purposes.

“The EU’s message today is clear: Iran should not
underestimate our resolve,” U.K. Foreign Secretary William
Hague said in an e-mailed statement. “We will continue to do
all we can to increase the peaceful pressure on Iran to change
course and to return to talks ready to reach a negotiated
solution by addressing the world’s concerns.”

Research Reactor

The Gulf nation has increased production of 20 percent
enriched uranium and grew its stockpile of low-enriched uranium,
the International Atomic Energy Agency said on Aug. 30. Highly
enriched uranium can be used to produce electricity or to
manufacture an atomic bomb.

The Islamic republic today reiterated an offer to suspend
domestic production of medium-enriched uranium in exchange for
fuel for its Tehran Research Reactor, according to Press TV.

While Iran has the right to nuclear power for electricity
purposes, it has to give up on any ambitions to develop nuclear
weapons, German Foreign Minister Guido Westerwelle said, adding
that the current EU approach is starting to pay off.

“We want a political and diplomatic solution,”
Westerwelle said before the meeting. “Sanctions are beginning
to work. That sanctions are beginning to work shows that a
political and diplomatic solution is possible. So far, we
haven’t seen sufficient readiness for substantial talks on the
atomic program.”

‘Strict Conditions’

As a part of the package adopted today, the EU prohibited
transactions between European and Iranian banks except for those
“explicitly authorized in advance by national authorities under
strict conditions,” to ensure that the bloc’s financial
institutions don’t process funds that contribute to the Iranian
nuclear program, according to an EU statement. Restrictions were
also tightened on Iran’s central bank.

The sanctions will be published in the EU Official Journal
tomorrow.

The new restrictions also include a ban on exports to Iran
of materials that could be used in the Iranian nuclear and
ballistic programs, in particular graphite, aluminum and steel
as well as industrial software. In addition, the EU prohibited
the import of natural gas from Iran and broadened the existing
export ban on key equipment for the Iranian oil, gas and
petrochemical industries.

Bank Transactions

Iran’s budget deficit may widen the most since at least
2007 as the U.S. and Europe starve Iran of foreign currency by
imposing an embargo on oil, the country’s main export, and
blocking other transactions in dollars and euros, according to
International Monetary Fund forecasts published last week.

Oil output in Iran, previously the second-biggest producer
in the Organization of Petroleum Exporting Countries after Saudi
Arabia, has sagged to 2.63 million barrels a day in September
from 2.85 million barrels in August, the International Energy
Agency said in a report on Oct. 12. Exports will remain “quite
low for the next few years,” according to Antoine Halff, the
agency’s head of oil industry and markets division.

Furthermore, the package adopted today imposed new
restrictions in the shipping industry, prohibiting the use of
vessels that belong to EU citizens and companies for
transporting or storing Iranian oil and petrochemical products.
The ministers also banned flagging and classification services
for Iranian oil tankers and cargo vessels and decided that EU
nations will no longer support trade with Iran through new
short-term export credits, guarantees or insurance.

‘Substantial’ Support

The sanctions list will be extended to include 34 entities
that provide “substantial financial support to the Iranian
government” and one person involved in the country’s nuclear
program, according to the EU statement. The companies are active
notably in the oil and gas industry and in the financial sector,
the EU said.

Israel has threatened to attack to stop Iran’s nuclear
program if the sanctions fail to curb it. Iranian leaders say
they won’t back down.

“It’s very, very important that Iran is sent a very strong
signal,” Catherine Ashton, the 27-nation EU’s foreign policy
chief, said before today’s meeting. “We want to see a
negotiated agreement.”